What’s driving prices up?What can you do about it?

By John Silveira

Issue #111 • May/June, 2008

I went to the market the other day and bought a loaf of bread for $4.09. I don't buy bread that often, but I thought the price was a little excessive. I mentioned my shopping experience to the ladies at the office, and one of them pointed out that just a few months ago the same loaf of bread was just over two dollars. As I thought about it, I realized the prices of everything seemed to be going up. But while some things are creeping up slowly, others, such as bread and gasoline, have been increasing by leaps and bounds.

Gas I could understand, but bread? I began to wonder what was causing it and, more importantly, if there is anything we can do about it? When I began researching the causes, I discovered that there was no single driver sending prices into their upward spiral. A lot of things are happening, on both a national and worldwide scale, and many of them are not easy to reverse. Worse, it looks like the problems may be with us for a long time to come.

The causes

Petroleum: We've all been watching the news and witnessing the escalating price of a barrel of petroleum. Just a few years ago, when the price broke through $40 a barrel, we were afraid it would bankrupt the country. This afternoon the price of a barrel of petroleum on the world market went over $107 for the first time in history. Forty dollars a barrel now seems like the good old days, and we can only dream about them coming back. But they won't; the price is just going to go higher.

And the problem is that this isn't just making your car or truck more expensive to drive, but it's driving up the cost of almost everything you eat, wear, or use because it takes petroleum to make fertilizers, fabrics, plastics, drugs, and a myriad of other everyday things. It also takes petroleum to truck goods to the stores where you shop.

By making everything more expensive, the cost increase in petroleum has harmed our industrial capacity. It's become a major factor for the recession we are plunging into. Worse, this combination of inflation and recession is the classic recipe for a return to the stagflation that plagued us in the 1970s.

The increase in oil prices has also prompted political decisions that have caused food prices to go even higher than they ordinarily would have. Congress has mandated that the oil companies start blending their gasoline with ethanol and begin providing biodiesel to replace petroleum-based diesel fuel. The idea is to make us more energy independent. But in this country ethanol is made from corn, and biodiesel is made from soybeans. As a result, 20% of America's grain supply was used to make fuels in 2006, 25% in 2007, and estimates are that it will gobble up 30% this year. This mandate has had the unintended consequence of raising the prices of corn and soybeans, and to take advantage of these price increases, farmers are taking wheat fields out of production and planting more corn and soybeans instead.

The result is less wheat for human consumption and for feeding livestock. Less wheat means wheat costs more. The rising prices of grains is driving the price of other commodities up as it translates into higher prices of not only bread but beef, chicken, pork, milk, butter, and eggs from the animals we feed grains.

The irony, as a commentator pointed out, is that by diverting grains to the production of biofuels we are taking corn out of people's mouths and putting it into our gas tanks and driving up the cost of both.

The dollar: A second cause of our higher prices is the American dollar's plunge in value against virtually all the other major currencies of the world, and signs are that it will weaken further. This has unsettling implications for the American consumer.

Much of the reason the price of a barrel of oil is going up is because the value of the dollar is going down. The petroleum producers in OPEC understand this, and the further the dollar drops the more of them they demand to offset its declining value. This has created a vicious circle of even higher prices for everything we use petroleum for, leading to more inflation and more recession.

The falling dollar is also making grains and other agricultural commodities produced by this country cheaper for foreign buyers who have more stable currencies, and this puts even more pressure on the American consumer. For example, as the dollar falls against the euro, it means it takes fewer euros to buy American agricultural commodities. But these foreign customers mean competition for American consumers, including the companies that are making our bread. The result is that while Europeans may need fewer euros to buy American corn, wheat, beef, and other products, American companies making bread must spend more dollars to buy the same items. They then pass their increased costs onto the American consumer.

As I write this, some types of wheat have topped $10 a bushel, and others have gone over $15. Just two years ago they were under $4. There's your $4 plus loaf of bread.

Developing countries: Another reason we're paying more is that developing countries are getting richer and, as their standards of living have increased, there has been a corresponding increase in the demand of their citizens for meat. This includes countries with burgeoning populations, such China and India, the two most populous countries in the world. You "make" meat with grain, so this, too, is driving up grain prices worldwide.

In the last quarter century the consumption of meat products in developing countries has tripled, and the rate at which overall worldwide meat consumption is projected to grow is twice what the rate the world's population is expected to increase. Again, unless we find ways to expand production, this also means higher prices for you.

Weather: Even Mother Nature has conspired against the American consumer. Droughts and other weather disturbances around the world, including here at home, have created crop shortages and increased the demand for American agricultural goods, once more driving up their prices.

Grain shortage: The factors I've listed have conspired to make grain stocks, worldwide, sink to their lowest levels in 30 years. These shortages also mean higher prices for grains and anything dependent on grains.

What can you do?

There is no easy fix. Despite all their campaign rhetoric, none of the current batch of presidential candidates have an easy, or even sensible, solution. Congress doesn't, either. The problems are not going to just go away. Expect bread to get more expensive. Expect pork chops to get more expensive. Expect the clothes you wear to get more expensive. Expect gas to go up at the pump.

Don't expect relief any time soon. The prices of fundamental commodities, such as rice, corn, soybeans, and wheat are expected to increase over the next decade. And likely, so will the price of petroleum. And there's nothing you can personally do to bring the market prices down. However, there are things you can do to lessen the burden on yourself. In this issue our writers have come together to present some of the strategies you can use to make the possibility of the twin demons of recession and inflation more manageable in your self-reliant lifestyle.

On page 49, Get serious about gardening, Jackie Clay addresses gardening as a way to help protect yourself and your family from the possibility of food shortages during what seems likely to be bad economic times ahead. Following her advice is a sensible strategy for reducing some of your food costs.

Protein: the cornerstone of a survival diet on page 24, also by Jackie, discusses ways to ensure adequate proteins whether it's to ride out an economic catastrophe or just to save money even during good times. She includes purchasing sale meats now and canning them, raising rabbits or chickens, wild game hunting if that prospect is available, keeping dairy goats, and more. She even covers some non-meat proteins. Unless you're a committed vegetarian, animal proteins are going to be at the top of the list of foods you'll miss if they become scarce or too expensive to buy during an inflationary recession.

Fast and easy bread recipes on page 72, by Ilene Duffy. What more can I say? Four-dollar loaves of bread versus the greatly reduced cost and health benefits of making your own are things you should seriously look into.

On page 30, Claire Wolfe's article, Circle of friends: The importance of other people in our preparedness plans, is a reminder that in hard times a lone-wolf mentality isn't going to get you through. There are things you should have stocked but overlooked, underbought, or that wore out, that you're going to need. You may need your neighbors, and they may need you. Find out who your neighbors are, how you can help each other both now and if the economy goes south, and acquire preparedness buddies.

In The art of scrounging building materials at bargain prices by Dorothy Ainsworth on page 8, you'll learn how a single mom with little income built and furnished several structures, including her own home, using largely salvaged materials. She explains how you can do it, too, even in bad economic times.

Whole wheat and other grains are at the heart of many people's survival larders. On page 58, Sylvia Gist's Whole grains: a healthy choice discusses various whole grains, where to get them, how to store them, and how to use them. And she doesn't limit herself to wheat. There are other whole grains worth considering.

In Can you survive out of your pantry for a whole year? on page 18, Jeffrey Yago points out that many emergency preparedness kits are meant to carry you through a few days or weeks of inconvenience. But what if you're caught in a calamity that drags on for months or longer. What if we have a full-blown national depression with loss of jobs and a shortage of available supplies. Are you going to be in a soup line? Or is it possible that your pantry can get you through? Yago says it can, if you plan right, and he makes suggestions as to what you should have in your pantry to make it through.

In Preparing gun owners for the short-term future on page 34, Massad Ayoob reports that various factors including the ascension to the White House of a Democratic President is likely to send the costs of both firearms and all types to ammo to stratospheric heights. Inflationary woes will just make matters worse. The time to buy both firearms and ammunition, Mas says, is right now.

So, there are steps you should start takingtoday, if you haven't started alreadybecause it looks as if things could sour economically in the future, and no one knows how bad they'll get or how long they're going to last.

And in future issues, our staff and our writers will help you prepare even better.

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